Firm day expected despite lack of data

09:50 AEST, Monday 28 October 2013
Firm day expected despite lack of data
By Ric Spooner (Chief Market Analyst, CMC Markets)

Stronger US markets are likely to provide a firm tone to early trading on the local market today.

While there is not much scheduled in the way of market news this morning, there is a lot on the calendar for the remainder of the week. This includes a number of significant releases on economic activity in the US and Australia as well as manufacturing PMI’s around the globe. Markets will also be interested in minutes of the FOMC meeting, tomorrow’s speech by RBA Governor Glen Steven, and the beginning of the bank reporting season.

The greater data risk for the week may be in weaker than expected numbers. While the US Fed will want to signal that it’s options remain open in terms of when it begins to taper asset purchases, the consensus view is that it will not act until the next round of debt ceiling/budget negotiations have been finalised. Stronger than expected US economic data is unlikely to change this outlook, especially since next week’s figures pre-date the October shutdown. Weak data on the other hand could start to move out expectations on the taper timetable and bearish US Dollar. Any reduction in the Fed’s GDP forecasts might have the same effect.

While today looks like a quiet news day, there have been a number of days since the US debt ceiling agreement on which the market has pushed higher, despite any clear news catalyst. This reflects buyers looking to get set against an environment of a more benign risk outlook, expectations of very low interest rates for some time to come and gradually improving earnings.

From a technical point of view the S&P/ASX 200 is on a clear uptrend with buyers looking to take advantage of any corrective dips. One interpretation of Elliot Wave analysis suggests the index could be in the 5th and final wave of the rally that began from 3766 in August 2011. Even so it’s possible that this last leg of the rally could go quite a bit further before there is any major corrective decline. Medium term support for the market is between the 9 October low at 5119 and the 20 day moving average at 5215.

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